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Many things within the financial services industry are like double-edged swords in that they cut both ways. One in particular is quarterly rebalancing. On the surface, it’s an important portfolio management tool because it executes the application of Buy Low and Sell High, a basic and well-known investment principle.

In traditional rebalancing, the gains in any asset classes are sold (selling high) and then applied to underperforming assets (buying low) four times a year, at the end of each calendar quarter. The idea of rebalancing really became popular after the tech bubble of the early 2000s. As tech stocks ballooned, they became a larger and larger percentage of a person’s portfolio. If the investor failed to rebalance by shifting gains to other assets, when the bubble burst it hit those heavy in tech stocks very hard.

For buy-low/sell-high reasons, quarterly rebalancing can be a good thing, and I don’t want to completely discount its benefits. Its major flaw, however, is timing. By sticking to a specific and regular timeframe (quarterly), investors assume that’s the best and only time to rebalance. The way I see it, anytime you automate a strategy, investors and advisors alike become complacent, often missing opportunities to lock in gains and reduce risk … all in the name of doing less work and assuming it will all work out

We know that the markets recently reached new five-year highs. As you might expect, whenever that happens there are usually some pretty solid gains in a portfolio. In the first two months of this year, the broader markets, including the S&P 500 and Dow, were up over 6% … a number most people would be happy with over an entire year, especially considering the recent impact of the Great Recession on many investors.

But guess what? It’s not the end of the quarter yet, so if the upward trend doesn’t continue until the end of March, rebalancing may not be such a great tactic and, if you don’t snap up your current gains now, you could be leaving money on the table.

Arguments against rebalancing other than at the quarter’s end are tried and true. “We’re in it for the long-haul,” and “Minor changes in the market are smoothed out over the long-term.” In the past, I too drank the kool-aid of “do nothing and hope for the best,” but the market goes up and down, and right now it’s up a lot. In fact, it’s up to almost 10 times the average one-year CD rate. So why keep hoping things continue on this path until the end of the quarter? Why not rebalance now and take some immediate gains? Might it not be better to consider rebalancing when your portfolio gains reach a certain percentage of your annual return goal?

Failure to even consider these questions lies in the fact that too many investors are told quarterly rebalancing is good money management, and it has to be done this way or you’ll be a candidate for the psych ward for not following the herd. Unfortunately, following the herd and applying rules of thumb (what I call rules of dumb) rarely get you anywhere in either life or portfolio management.

Don’t be afraid to follow your gut instincts. If you’re feeling like the market has had a good run … if maybe you’re concerned about automatic spending cuts (sequestration) coming in a couple of weeks, or you don’t like what’s happening in Europe or North Korea, nothing says you can’t rebalance now or just sit on some extra cash.

It’s time to understand that there are no “best” or “must follow” rules for investing. Today’s investors shouldn’t expect an automated process, by itself, to help them reach their financial goals. They need to feel comfortable rebalancing either inside or at the end of the quarter. It’s always the right time to do what’

s best for your portfolio and not just what’s common practice or the least amount of effort.